How To Spend Money
To get the best for one's money requires deliberate thought rather than haphazard impulse buying. Purchases should be made only after weighing the choices. A choice might be made between saving for expensive articles or buying less expensive substitutes immediately. Another choice might be made between going into debt to purchase expensive goods at once or saving for them. If the family decides to go into debt, it should find the most economical way to finance such purchases by comparing the cost of credit offered by various institutions.
One experienced budget maker uses these three questions as a rule of thumb before making purchases: Do I want it? Do I need it? Can I do without it? Establishing a budget and following it faithfully can set a pattern for intelligent spending and saving.
How to Save
The best way to make savings for emergencies and long-term goals is to set a regular amount aside from the paycheck before budgeting remaining income. Occasional listing of financial assets (what the family owns) and of financial liabilities (what it owes) shows family progress toward short-term, intermediate, and long-term goals.
Savings may be placed for ready use in savings accounts, savings and loan shares, credit union shares, and government bonds. As more savings are accumulated, they can be invested in real estate, the family business, and corporate stocks. These investments tend to increase in value in prosperous periods but to decrease in depressed periods. Social Security, life insurance, employer retirement plans, and annuities also serve as long-run protection for the family. Those who have property should make a legal will for the distribution of the property after their death.
How to Borrow
The use of credit permits the family to enjoy goods and services while paying for them or, in some cases, to meet emergency expenses. The family needs to restrict credit payments to allow money for other expenses and to maintain flexibility in the family budget in case of unexpected expenses or decreased income.
Costs of credit over the true cash price vary with the type, amount, and length of the credit; the credit reputation of the borrower; and among retailers and lenders. Because credit may cost from 6% to 36% or more a year on the declining unpaid balance, the family should shop as carefully for credit as for goods and services.
For personal loans, families may shop among banks, life insurance companies, credit unions, and consumer finance companies. Items such as clothing may be purchased on charge accounts at retail stores; furniture, equipment, and automobiles may be purchased with installment credit. Home loans, extending over many years, may be obtained by shopping among banks, savings and loan associations, and other lenders.
How to Buy
To economize, take advantage of the following methods where practicable: shop with a prepared list. Avoid the less-needed items. Obtain accurate measures and prices. Purchase seasonal specials. Buy at special sales. Accumulate funds ahead to stock up at sales. Select the quality and brands necessary for the purpose but avoid buying a higher quality than needed. Select size and type of package and number of units offered at the lowest price per unit.
Purchase at stores with lower prices. Forgo special services, such as credit and prizes. Provide at home those goods and services on which the greatest savings can be made, such as dinners, home-sewn garments and household textiles that need custom fitting, small repairs of home and auto, and haircuts for children. Avoid waste in use of items in the home.
How to Control Expenditures
A record of expenditures as they are made allows comparison with the budget plan. The record also provides material for analysis and preparation of next year's budget. The father may have responsibility for the auto budget, the mother for the food budget, and the child for his school budget. Each person needs some personal allowance.
Checking accounts, charge accounts, and many other means, such as setting up separate envelopes for different types of expenditures, are used by families to control their expenditures within the budget allowances.
The modern family finds it advisable for the husband and wife, and the children as they are able, to participate in making the long-term financial plan and next year's budget, and in controlling expenditures. Children are trained for adulthood by learning to spend money wisely and by earning part of their money. Unsatisfactory personal relationships may cause any family member to be extremely miserly or generous, careless or dictatorial in the use of money.